Many experts consider cryptocurrencies to be the future of the worldwide economy. Therefore, the various investment techniques used to obtain benefits in the cryptocurrency market are becoming more innovative and reliable.
One of those techniques is the cryptocurrency arbitrage , which is a strategy of buy and sell that seeks to take advantage of the price differential of one or more assets in the market.
In this type of operation the risk is very low (if done correctly), so it is a very striking practice for investors and brokers.
That is why the cryptocurrency arbitrage is used by many traders and investors, in order to achieve a significant increase in their earnings with the least possible risk.
The arbitration is one of the most common actions performs in the world of cryptocurrencies, for being a very safe .
And in this case, a purchase is not made if there is no sale with the highest guaranteed price .
In this article we will teach you various details about the cryptocurrency arbitrage and the different variants that exist .
What is cryptocurrency arbitrage?
When we talk about this type of arbitration , it is related with the whole process of buy cryptocurrencies in an exchange made at lower prices, in order to sell them at a higher price on another exchange.
And all this is possible because the exchanges have different prices for the same cryptocurrency.
This possible price difference is very favorable for traders and investors, since it allows to achieve higher profits, all thanks to cryptocurrency arbitration .
Currently, the development of various software to study the cryptocurrency market and price variations, in addition to automatic operations, has encouraged more investors to participate in this world financial.
How does cryptocurrency arbitrage work?
The way is calculated the price of the cryptocurrencies will allow the process of arbitration.
And it is that the price of a cryptocurrency originates of the supply and demand of the users, who intend to buy and sell a coin.
This dynamic can incentivize the price to high oa the drop, depending on the case. But what is clear is that it allows a cryptocurrency arbitration so you can make the best investment decision.
In that case, if you want to know how traders usually use this arbitration to increase your earnings, we indicate it below:
- First, the trader proceeds to purchase a quantity of cryptocurrency (your preference) on a given exchange.
- Subsequently, the trader offers this amount of cryptocurrency for sale on another exchange. Of course, the sale price will be higher than what you initially paid the exchange for.
- If you manage to have a successful sale, the trader will get a higher net profit to that of your investment.
Different variants of cryptocurrency arbitration
There is no doubt that the market for cryptocurrencies generates high expectations worldwide.
Although sometimes, its type of volatility generates a great uncertainty, so many investors feel that it is a risky thing to make an investment in cryptocurrencies , even knowing the high returns of this market.
Next, we will detail the different variants of cryptocurrency arbitrage that exist, so that you know the characteristics of each one.
Consists of selling and buying directly the same cryptocurrency on various exchange platforms.
The end of this cryptocurrency arbitration is to buy a coin that has a “low price” on one exchange and then sell it on another exchange where it has a higher price.
In this type of arbitration the differences of prices between 3 different cryptocurrencies.
In this case, one type of cryptocurrency is purchased, then sold for a different one, and exchanged for a third.
Crypto Arbitration- FIAT
When we talk about crypto-FIAT arbitration (in manual mode or through a platform or software ), arbitration is used between cryptocurrencies and currencies, as well as artificial intelligence algorithms, to de this way offer returns in high risk investments.
Currently, crypto-FIAT arbitration ha served as protection for current markets, due to the crisis situation we are experiencing.
Internal type arbitration
The internal arbitration or intra-arbitration is the one carried out in a single cryptocurrency exchange, with the aim of making profits with the quotes of incorrect values .
This is possible because the administration of the cryptocurrency exchange does not have the time to adjust for costs from coins to average in the market.
For this reason, in many cases, the incorrect figures they are seen in the pairs of cryptocurrencies.
Static type arbitration
This arbitration is based on the cost differences between cryptocurrencies that are correlated with each other (eg Litecoin and Bitcoin). In that case, if you decrease the value of one, the value of the other manages to increase.
Advantages of cryptocurrency arbitration
Use the technique cryptocurrency arbitration will allow you to carry out a market analysis and thus know the best alternatives that will generate higher income and high profitability.
The advantage of this type of practice is, without doubt, its reliability. To be able to carry out operations of buy or sell locating attractive prices with a high possibility of profit is the dream of any investor or broker.
Something important with this type of strategies is that they must be carried out by experts or connoisseurs of the financial market and specifically that of cryptocurrencies, in order to guarantee the return on investment and the highest earnings possible.
Remember that for the cryptocurrency arbitrage it is necessary to monitor the prices of cryptocurrencies on various exchanges and make the best decision when buying and selling currencies.
There is no doubt that cryptocurrencies have come to settling for a long time, and therefore are one of the main investment alternatives today